This is a really long read. I’ve basically taken all the quotes I found interesting from the book Influence by Robert Cialdini and just typed them out here, along with some of my own notes and commentary in bold italics. If you’ve never read the book, this is probably going to give an overview of what the book is about and its six main sections. I think this is a highly valuable book, with lots of insights on human psychology that is relevant whether you are operating in the markets or going to a party. Going through the book again and writing all of this helped further solidify my own takeaways from this amazing book.
Interrupting your regularly scheduled broadcast of my monotone voice reading out Berkshire Hathaway’s annual shareholders letter from 1977 onward (find 1977 here and 1978 here) – which got interrupted, first by a weekend of intense video gaming with a friend visiting from out of town and then by Father’s Day, but should be back on track starting this weekend with 1979 almost fully recorded – I recently finished Why We Snap: Understanding the Rage Circuit in Your Brain by Douglas Fields and I wanted to try something slightly ambitious: connect the main concept of the acronym LIFEMORTS from the book into the Trump phenomenon. Bloody hell that sentence was the length of a paragraph. My sentences seem to get longer and longer with each passing year out of school.
How insightful is that!? Have you ever heard that before? I bet half of you just had some sort of financial-religious experience and half of you have rolled your eyes so hard that you’ve gone cross-eyed.
This is old hat for many of you, but it is an extremely important model to conform to: know thy circle of competence and stay within it at all times. It’s seductively easy to stray out of our circle of competence. People spout on about things they have little to zero knowledge of all day, every day. Go check out the bowels of Reddit if you need confirmation. The harm is minimal when you’re bullshitting with your friends, although you may be labelled a douche if your ignorance is ever caught. But the harm can be tremendous when it comes to your hard earned money. Look at all the people who got burned recently with Kinder Morgan. How many were piling in because they understood the intricacies of the risk/reward payout of pipelines, master limited partnerships, and the energy sector? Or were many getting lured by the promises of management and a history of rising dividend payouts? Hindsight is hindsight, but if one really understood Kinder Morgan and the business environment it operated in, there potentially could have been red flags that were raised as you studied the company in depth. But I’m not here to talk about Kinder Morgan today. Let’s speculate on the fall of Dividend Mantra.
I was having a great back and forth conversation with Dividend Growth Investor (DGI) on the recent article on temperament. We went from the comment section into long and detailed emails on our position surrounding investors’ temperament and our opinions on why or why not the “average” investor might be fairly terrible investors, from a total returns perspective. Half way through the tome of an email reply I had written back, I started getting into the basics of the brain. When gathering mental models, it’s not enough just to read and understand finance, business, and accounting – ultimately, you need to have a base level understanding of all the major ideas in every field, from biology and physics to psychology and anthropology. The amygdala hijack – term coined by Daniel Goleman in his book Emotional Intelligence – is a blend of ideas arising out of biology, neuroscience, and psychology. For me, the concept of the amygdala hijack really illuminates why investors might typically buy high and sell low, leading to abysmal returns.